The USD/MXN pair is trading around 19.30 during the early European session on Tuesday, following a retreat from Monday’s peak of 20.23, the highest level since September 2022. The pair has faced pressure due to heightened risk aversion stemming from recent disappointing labor market data in the United States, raising concerns about the Federal Reserve’s ability to address an economic downturn.
Economic growth worries in the U.S. have triggered a widespread selloff in financial markets, adversely affecting emerging market currencies such as the Mexican Peso. However, the upward movement of the USD/MXN pair might be limited as the U.S. Dollar could face headwinds due to the anticipated 50-basis point interest rate cut by the Federal Reserve in September. The CME FedWatch tool now indicates a 74.5% probability of this rate cut at the September meeting, a significant increase from the 11.4% chance reported just a week ago.
Federal Reserve Bank of San Francisco President Mary Daly expressed increased confidence on Monday that U.S. inflation is moving towards the Fed‘s 2% target. Daly noted that “risks to the Fed’s mandates are becoming more balanced and that there is openness to the possibility of cutting rates in upcoming meetings,” according to Reuters.
The Mexican Peso faces challenges amid speculation of a potential dovish shift from the Bank of Mexico (Banxico) due to concerns about a slowing economy. Mexico’s GDP grew by only 0.2% in the second quarter ending in June, down from 0.3% growth in the previous quarter. Traders will focus on the July Auto Exports data due on Tuesday, with additional attention on inflation data and Banxico’s monetary policy decision on Thursday.
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